Brexit two months on: How has the rural sector been affected?

September 6, 2016

Since the UK voted to leave the European Union on 23 June much has already begun to change, with widespread uncertainty as to what the outcomes and repercussions of this decision may be. And whilst it may take up to two years for the UK to formally leave the EU, businesses should start to consider how they will be affected by these changes in both the short and long-term.

So, within just two months post-Brexit, how has the rural sector already been affected?

Change 1: Weakening of the pound

Since the morning of 24 June, Sterling has dropped significantly against the Euro, US Dollar and many other currencies; meaning that a weak pound raises the price of imported goods. This will reflect negatively for the sector in terms of machinery costs as the majority of agricultural equipment is imported from Europe. Therefore, farmers will be forced to pay higher costs, or just make do with the machinery they currently have and, given the slightly subdued harvest compared to the past two; we imagine that most rural businesses will go for the latter. Additionally, as oil is historically traded in US Dollars, higher oil prices may negatively affect the sector, although it should be noted that oil prices are still far below the level they were at this time in 2015.

But don’t despair – it is not all doom and gloom!

A weakening of the pound has now made British produce more competitively priced in the global market with this, therefore, extending the global market that British businesses are able to realistically sell to. And with the French Harvest’s relatively poor quality up until now – the weakening of the pound is helping considerably with wheat markets.

Change 2: A fall in interest rates

Since Brexit, interest rates have plummeted to a record low of 0.25% – the lowest level in the Bank of England’s 322 year history! Generally, a fall interest rates is good for borrowers and bad for savers which means if your business requires any finance – this is now more likely to be cheaper. Additionally, a fall in interest rates acts as a small relief for tracker loans taken out as less interest now needs to be paid back.

Change 3: Land prices

I think values have flat lined/levelled off before and have not moved much since Brexit, with the provision that good land nearly always achieves the premium. From my understanding, the amount of sales or number of transactions had slowed pre Brexit and this has not really fully recovered since.

Change 4: The possibility of Glyphosate banning

Just a couple of days following Brexit, The European commission granted a last-minute reprieve to glyphosate, the key ingredient in Monsanto’s bestselling Roundup weed killer, just hours before it faced a recall from outlets across Europe. Glyphosate will now be given an 18-month extension until a new ruling on its safety is provided by the European Chemical Agency, by the end of 2017.

However, if banned by Europe – will a new non-European UK also ban Glyphosate? With many farmers relying extremely heavily on this product, significant issues may occur if they have to do without it, so perhaps Britain may be more lenient in allowing Glyphosate indefinitely? But only time will tell…

So, what now?

Undoubtedly, the largest worry for many lies in what subsidies will be like post the European Common Agricultural Policy, however, the UK Government has guaranteed that direct payments will continue post Brexit but only until 2020. Beyond this date? Who knows.

Similarly, we can do very little on the macro scale to affect the future for our business, however, farmers can make a big difference on the micro scale; ensuring that the decisions you make now put you and your business in the best possible position for the future.

As already mentioned, the UK officially leaving the EU will be a while coming, and this time provides rural businesses with the opportunity to use the time to adjust. This may not be an easy, as there will undoubtedly be continued uncertainty as to what the future will look like, but reviewing your own business, how it operates and its strategic plans for the future will ensure your business is as robust and flexible as possible to put you in a position to deal with the potential risks and opportunities that will come your way.

As a reputable firm of professional advisers to the rural community, we can help with those difficult decisions; from being a sounding board to advising on the financial and tax implications of different courses of action. For further information, or to discuss your specific circumstances, please contact one of our rural specialists who will be more than happy to assist.